New U.S. sanctions hit Russian energy barons, but not their companies

The Obama administration sought to tighten the noose on the Russian economy Monday, imposing new economic sanctions against 17 companies and seven associates of President Vladimir Putin for Russia’s failure to keep promises made in recent Ukraine peace talks.

Masked pro-Russian activists block the office of a "Privatbank" bank, owned by a businessman who is considered to back the new pro-western government in Donetsk, Ukraine, Monday, April 28, 2014.
AP

The Obama administration sought to tighten the noose on the Russian economy Monday, imposing new economic sanctions against 17 companies and seven associates of President Vladimir Putin for Russia’s failure to keep promises made in recent Ukraine peace talks.

President Barack Obama announced the new asset freezes and visa bans against rich or politically connected members of Putin’s inner circle at a news conference in Manila, Philippines, where he was completing a four-nation tour of Asia. He said the sanctions were intended to chastise Russia for not matching U.S. and European efforts to ease tensions in Ukraine under an April 17 agreement reached in Geneva.

“We have not seen comparable efforts by the Russians, and as a consequence, we are going to be moving forward with an expanded list of individuals and companies that will be affected by sanctions,” Obama said. “They remain targeted. We will also focus on some areas of high-tech defense exports to Russia that we don’t think are appropriate to be exporting in this kind of climate.”

While the new sanctions don’t target Russia’s energy sector _ Obama said that step would be taken if Russian troops crossed the border into Ukraine _ they take aim at individuals whose wealth comes largely from Russia’s vast oil and natural gas industry. The reluctance to impose broad sanctions on Russian sales of oil and natural gas reflects concerns that such a step would cripple Europe’s economic recovery _ the European Union is deeply dependent on Russian energy _ and likely drive up global oil prices, which would hurt U.S. consumers and slow the U.S. economy ahead of hotly contested midterm elections in November.

The sanctions also don’t target Putin. “The goal here is not to go after Mr. Putin, personally,” Obama said. “The goal is to change his calculus with how the current actions he’s engaging in in Ukraine could have an adverse impact on the Russian economy.”

“It seems to me a pretty modest step,” said Michael Singh, a former senior national security adviser in the Bush administration, who thinks the administration’s approach has emboldened rather than punished Putin. “You have to be willing to show that you are ultimately willing to incur a cost to deter Russia.”

Republicans expressed similar dissatisfaction, with Sen. Bob Corker of Tennessee, the ranking Republican on the Senate Foreign Relations Committee, referring to the new sanctions as “just a slap on the wrist.”

“Until Putin feels the real pain of sanctions targeting entities like Gazprom _ which the Kremlin uses to coerce Ukraine and other neighbors _ as well as some significant financial institutions, I don’t think diplomacy will change Russian behavior and de-escalate this crisis,” he said. Gazprom, a major Russian energy consortium, provides natural gas to Ukraine and much of Europe

Senior administration officials, speaking only on the condition of anonymity in order to discuss the crisis freely, acknowledged that sanctions won’t have an immediate effect. But they said that over time the sanctions would damage Russia’s already troubled economy and that would persuade Putin to change course.

“It’s important that together with the additional prospect of sectoral sanctions, Russia sees the dead end that it’s going down in Ukraine and, frankly, the fact that their interests will be severely compromised and set back in the world if they continue down this course,” said one of the officials.

Russian officials condemned the move as “revolting” and vowed to retaliate against Washington.

“We will respond, although it is not our choice,” the Itar-Tass news agency cited Sergey Ryabkov, Russia’s deputy foreign minister, as saying. “But we can’t leave this situation without reaction, without practical reaction, without reaction by means of our own decisions. U.S. behavior in the field is becoming provocative.”

Under the sanctions, seven individuals will have their U.S. assets frozen and will be prohibited from traveling to the United States. Seventeen companies also will have their assets frozen. In a new wrinkle, the administration imposed requirements for the sales of high-tech equipment to 13 of the 17 newly sanctioned companies. These licensing efforts will begin with the “presumption of denial” to prevent Russian companies from buying anything that “could contribute to Russia’s military capabilities.” Already existing licenses for the sale of such equipment will be canceled, the White House said.

The most prominent individual blacklisted under the sanctions is Igor Sechin, the head of energy giant Rosneft, Russia’s leading petroleum company. Rosneft has tentacles across global oil markets, including several joint ventures with Texas-based Exxon Mobil. The sanctions would freeze any assets held in the United States by Sechin, a former deputy prime minister and former chief of staff to Putin. Rosneft’s assets would remain unaffected.

Monday’s sanctions also target Sergei Chemezov, a close Putin friend, ally and longtime head of the Russian state-owned company charged with developing, manufacturing and exporting high-tech industrial products. The sanctions target Chemezov personally but not his company, known by the acronym Rostec.

Another important target Monday was Yevgeny Murov, an elderly and influential army general who heads the Russian federal protective services unit.

The four other Putin allies sanctioned include Moscow’s new envoy to Crimea, the Ukrainian territory that Russia annexed last month.

The 17 companies targeted are tied to individuals who were hit with a round of sanctions imposed March 20. They include InvestCapitalBank and SMP Bank, controlled by brothers Arkady and Boris Rotenberg, Putin allies who won lucrative contracts tied to Russia’s hosting of the recent Winter Olympics. Also sanctioned was Stroygazmontazh, also known as the SGM Group, a gas pipeline construction company owned or controlled by Arkady Rotenberg.

Hitting at a wealthy energy mogul, the Treasury sanctioned the Volga Group, whose sole investor is Gennady Timchenko, who was also sanctioned March 20. Volga Group is an investment group that holds interest in a variety of Timchenko assets including natural gas, timber, railroads and financial services. The sanctions affect Transoil, an oil transportation company, as well as nine other companies tied to the Volga Group.

The remaining three companies _ Abro, CJSC Zest and JSB Sobinbank _ are tied to Bank Rossiya, which was also targeted in March.

Lesley Clark and Lindsay Wise in Washington and Stuart Leavenworth in Manila, Philippines, contributed to this report.